With farm income suffering from low crop prices and livestock producers facing tighter margins, more operators are borrowing money to cover short-term needs and some are having trouble repaying the loans, according to Federal Reserve banks in the Farm Belt. Agricultural bankers expect farmland values in the Midwest and central Plains to soften or hold steady through June. Land is a farmer’s greatest asset.
“Strains on the farm economy have begun to affect the overall economic picture in some states,” said the Kansas City Fed in its quarterly Ag Credit Survey. Growth in personal income was slowest in 2014 in heartland states, such as Iowa, Nebraska and South Dakota, where crop production is significant. “Additional declines in farm income could continue to create economic challenges in states heavily dependent on crops,” said the Kansas City Fed.
Farmland values in Iowa are down 6 percent from a year ago, while Illinois and Indiana saw 1-percent declines, said the Chicago Fed’s Ag Letter, noting corn and soybean prices are sharply lower than in spring 2014. “So, naturally, the states with a greater dependence on corn and soybean revenues would face more downward pressures on their farmland values.” Prices for quality farm land in the St. Louis Federal Reserve district were down by 2.5 percent. Land values edged lower in the Plains, said the Kansas City Fed.
In its Agricultural Finance Monitor, the St. Louis Fed said bankers in its region, stretching from Louisville, Kentucky, to Jefferson City, Missouri, and Little Rock, Arkansas, reported that farm income and farm household spending was lower than a year ago, as well spending on capital equipment such as machinery, with further declines expected in all three categories through June.
Ag bankers in the Midwest expect lower crop income for farmers and tighter profit margins for dairy and hog farms this year, said the Chicago Fed. Half of the bankers taking part in a Chicago Fed survey said they expect land prices to be stable through June, and a quarter expect them to decline.
Bankers told the Chicago, St. Louis and Kansas City Feds that demand for loans is up but repayment rates have declined. “Similar conditions are expected to prevail in the second quarter,” said the St. Louis Fed. The Kansas City Fed said that in the Plains, “[L]oan repayment rates have declined significantly.” The Chicago Fed said “demand for non-real-estate loans was once again much stronger than a year ago,” but repayment rates “were much weaker.”
The USDA forecasts a 32-percent plunge in net farm income this year from 2014 due to lower crop and livestock prices. It would be the lowest net farm income since 2009. Net farm income is a gauge of the value of farm production in a year, whether sold or held on the farm.